Cedar Fair is called the better way to play the pending merger with Six Flags

Six Flags Entertainment Corporation (NYSE:SIX) traded lower on Monday after B Riley Securities dropped its rating on the theme park stock to Neutral from Buy following the recent share price rally.

Analyst Eric Wold noted that the downgrade was not due to any change in the firm's views around the positive merits of the proposed merger between Six Flags (SIX) and Cedar Fair L.P. (NYSE:FUN), but reflects the continued risks around regulatory approval.

"Based on the current trading levels for both FUN and SIX relative to our risk-adjusted projected valuations (should the merger not be approved), we believe FUN provides a more attractive entry point—if the proposed merger is ultimately completed, but especially if it is not approved."

Wold and team believe that FUN provides the more appropriate way to play the theme park sector merger if investors believe it will be approved, while SIX is seen having more downside risk.

Late in January, Six Flags Entertainment (SIX) and Cedar Fair (FUN) each received a request for additional information and documentary materials from the Department of Justice in connection with the regulator's review of the merger between the two theme park companies. Cedar Fair (FUN) and Six Flags Entertainment Corporation (SIX) announced on November 2 that they entered a deal to merge. The combined theme park company will have a pro forma enterprise value of approximately $8B based on both companies’ debt and equity values as of October 31. Under the terms of the merger agreement, Cedar Fair unitholders will receive one share of common stock in the new combined company for each unit owned, and Six Flags shareholders will receive 0.5800 shares of common stock in the new combined company for each share owned. Following the close of the transaction, Cedar Fair unitholders will own approximately 51.2%, and Six Flags shareholders will own approximately 48.8%, of the combined company’s fully diluted share capital on a pro forma basis.

Six Flags (SIX) was down 1.67% at 10:10 a.m. on Monday, while Cedar Fair (FUN) shed 1.05%.